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Additional annual investments in energy productivity of $170 billion through 2020 could cut global energy-demand growth by at least half while generating average internal rates of return of 17 percent. Such outlays would also achieve significant energy savings and cuts in greenhouse-gas emissions.

Unless there is a shift in world energy policies, global energy demand is set to accelerate, putting increasing strain on the world economy and the environment. Yet additional annual investments in energy productivity of $170 billion through 2020 could cut global energy demand growth by at least half—the equivalent of 64 million barrels of oil a day or almost one and a half times today’s entire US energy consumption.

MGI research suggests that the economics of investing in energy productivity—the level of output we achieve from the energy we consume—are very attractive. With an average internal rate of return of 17 percent, such investments would generate energy savings ramping up to $900 billion annually by 2020. Energy productivity is also the most cost-effective way to reduce global emissions of greenhouse gases (GHG). Capturing the energy productivity opportunity could deliver up to half of the abatement of global GHG required to cap the long-term concentration of GHG in the atmosphere to 450–550 parts per million—a level experts say will be necessary to prevent the mean temperature from increasing by more than two degrees centigrade. Moreover, the opportunities to boost energy productivity use existing technologies that pay for themselves and therefore free up resources for investment or consumption elsewhere.

The capital required appears to be well within reach. The annual sum is equivalent to some 1.6 percent of global fixed-capital investment today, or 0.4 percent of current global GDP.

MGI finds that global industrial sectors need just under half of the total capital required to capture the energy productivity opportunities we have identified—$83 billion a year. Residential sectors around the world need some $40 billion a year, roughly one-quarter of the total. The capital needs of commercial and transportation end-use sectors are smaller at $22 billion and $25 billion a year, respectively. Breaking down capital requirements geographically, developing regions represent two-thirds of the incremental capital needed, with China alone accounting for $28 billion or 16 percent of the total $170 billion annual requirement. The United States accounts for $38 billion or 22 percent of the total.

A wide range of energy-market failures currently discourage consumers and businesses from embracing higher energy productivity, and they deter investors from making the capital outlays that would help end users to overcome initial financing barriers. These market failures include fuel subsidies that directly discourage productive energy use, a lack of information available to consumers about the kinds of energy productivity choices that are available to them, and agency issues in high-turnover commercial businesses.

To overcome today’s barriers to higher energy productivity, MGI identified four areas for action: setting energy efficiency standards for appliances and equipment, upgrading the energy efficiency of new buildings and remodels, raising corporate standards for energy efficiency, and investing in energy intermediaries.

March 2009 – Global energy-demand growth is expected to flatten in the short term but will rebound with recovery. Indeed, there is potential for liquids-demand growth to outpace that of supply—risking a new spike in oil as soon as 2010 to 2013, depending on the depth of the economic downturn.

October 2008 – By choosing more energy-efficient cars and appliances, and selecting lower-energy-consuming production technologies, developing countries could cut their annual energy-demand growth by more than half over the next 12 years.

September 2008 – With energy-efficiency standards in Europe set higher than in many other regions, European companies are in a strong position to make large energy-cost savings and innovate lucrative new markets in energy-efficient technologies and services, attracting worldwide demand.

July 2007 – By taking advantage only of currently existing technologies that pay for themselves, China could further its ongoing efforts and reduce total energy demand in 2020 by as much as 23 percent.